Govt plans policy prescriptions to make IT fighting fit

NEW DELHI: With an impending slowdown in the IT sector - considered to be the sunrise sector of the country not very long ago - the government is mulling a review of policies which could bolster the sector's sagging fortunes. On the cards is a committee which is expected to study the factors affecting the industry and give its recommendations on the possible measures that the government could take to contain the situation.

As per initial discussions, the ministry of electronics and IT is deliberating whether there is a way the government can come up with policies that help the industry get back its focus and growth. "The review of the entire IT sector is being considered, even though some are contending that there is no slowdown in the sec tor, others have a feeling that jobs are moving from the software side and the situation has to be handled in a coordinated way so that the focus and growth of the sector continues," said an official privy to the discussion.The Indian IT sector reported one of its worst second-quarter results in a decade, as a slew of factors muted the sector's growth.

Slowing growth in the banking and financial services sector, Britain's decision to leave the EU, weaker discretionary spending and growing pricing pressure in the traditional business along with the shift towards newer modes of businesses such as digital and cloud have led Indian IT firms to temper down expectations.

Macro-economic challenges such as Brexit and a squeeze in client spending led Infosys to reduce its yearly guidance. It now expects revenue to grow by 8-9% in constant currency, lower than 10-12.5% growth it gave in July. Tata Consultancy Services (TCS) also posted a modest 0.3% increase in revenues sequentially. Cognizant too trimmed the top end of its full-year guidance making it the third time this year that the IT company has pared growth expectations. The company had initially expected revenue to grow 10-14%. It then cut that to 10-12%.Last quarter, it lowered the guidance again to 8.5-9.5%. The below expectation numbers have prompted Nasscom to review its full-year forecast for the industry and it is widely expected that the industry body will downgrade in the coming weeks.

The official said that since international revenues are stagnating for everyone, some policy measures can be taken to incentivise domestic demand, which can make up for the lost revenues from foreign business.

Sudin Apte, CEO of Offshore Insights said that there is a huge opportunity for domestic demand since mid-sized companies and large sections of the government are still not as digitised as they should be and technology is missing from lots of citizen services such as healthcare. Apte added that the software industry also needs to shift from price arbitrage to value-centric work so that the market opens up beyond US and Europe.

The scope of the committee, however, will be much wider than just the software sector. A key part of the committee will also look at the impact of the Goods and Services Tax (GST) on electronics manufacturing, especially for the mobile phones, which has been a huge success story . The roll-out of the GST is said to take away the duty differential advantage enjoyed by the companies that chose to manufacture or assemble in India over importing and is said to have made the industry nervous. The committee will be announced post consultation with the finance ministry over the issue.